Friday, 17 October 2014

There is no end to the ongoing euro crisis. Former Fed Chairman Alan Greenspanexplains why the euro is - and will stay - a huge failure:

"At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn’t," Greenspan said. "Instead, northern Europe fell into subsidizing southern Europe’s excess consumption, that is, its current account deficits."Greenspan predicts that as the south's fiscal crisis deepens, the flow of goods from the north will stop altogether and southern Europe's standard of living will go down. "The effect of the divergent cultures in the eurozone has been grossly underestimated," he added. "The only way to have several currencies from divergent nations lumped together is if they are culturally close, such as Germany, the Netherlands and Austria. If they aren’t, it simply can’t continue to work."

While these very different economies are locked into the one currency, one interest rate, system there’s really not a lot anyone can do about it. Some talk of fiscal union, which is in essence the rich areas sending money to the poor ones. But absolutely no one at all thinks that those rich areas have the desire nor capacity to ship enough money: we’re not talking about a few billions here or there, but substantial percentages of GDP being necessary.

All of which is what made me conclude long ago that the failure of the euro is inevitable. Please note, I don’t mean that collapse of it is: political finagling can hold it together for decades if people really try. What I mean is failure in an economic sense. Interest rates will always be set for the core economies, meaning that they will always be wrong for the peripheral ones. Which means that those peripheral economies are condemned to a cycle of huge boom and bust as interest rates are either way too low or way too high for their circumstances.Yes, I do think it fair to say that wild gyrations are a sign of failure in an economic policy or system. And in this sense, I think it inevitable that the euro will fail. For it already has.

Wednesday, 15 October 2014

This was to be expected: Suddenly Putin´s aggression against Ukraine is (in reality) forgotten. Barack Obama, one of the weakest US presidents ever, is offering the corrupted and criminal dictator another "reset" (even if his administration is not using the word). It will not take long before the former KGB agent is again welcomed and embraced by the "leader of the Free World":

Secretary of State John Kerry said on Tuesday that the United States and Russia had agreed to share more intelligence on the Islamic State, as he sought to lay the basis for improved cooperation with Moscow.

Just six months ago, Obama administration officials suggested that their goal was to isolate President Vladimir V. Putin following Russia’s decision to annex Crimea and provide military support to separatists in eastern Ukraine.

But Mr. Kerry made it clear that he would welcome expanded cooperation with Mr. Putin after a meeting here with Sergey V. Lavrov, the Russian foreign minister.

While nobody on the American side said the United States was undertaking another “reset” — the term the Obama administration used to describe its early attempt to improve ties with Russia — the tenor of Mr. Kerry’s comments suggested that the State Department was pursuing a new tack.

“It is no secret that the United States and Russia have had our differences over Ukraine,” Mr. Kerry told reporters. “We came together today in order to try to focus on those issues where we can find the capacity to be able to make a difference to other countries, to the world in general, and certainly to the relationship between Russia and the United States.”